Freeman v. Complex Computing Co.
119 F.3d 1044 (2d Cir. 1997)

  • Glazier developed some software for Columbia University. They licensed the software back to a startup, Complex, which was owned by Glazier’s friend. Glazier was hired by Complex as an ‘independent consultant’.
    • Complex didn’t have any assets other than the licensing agreement for the software and Glazier’s hard work.
  • Complex entered an agreement with Freeman to help market the software. The software was eventually licensed to a company called Thompson. Thompson also hired Glazier.
    • Freeman was not paid for his efforts to market the software. He sued for breach of contract.
  • Since Complex had no assets other than the software they had sold to Thompson, and the expertise of Glazier, who no longer was working there, there was nothing left for Freeman to take if he won his breach of contract claim. He asked the Court to pierce the corporate veil to allow him to go after Glazier’s personal assets.
    • Normally, a corporation’s liabilities do not transfer to the shareholders. However, in some situations, the courts will allow a claimant to go after a shareholder’s assets.
    • Glazier argued that he was not a shareholder, officer, director, or employee of Complex. How could he possibly be held responsible for their breach of contract?
  • The Trial Court found for Freeman and ordered Glazier to enter arbitration. Glazier appealed.
    • The Trial Court found that Glazier did not merely dominate and control Complex, “for all intents and purposes he was Complex.” In addition, he held the sole economic interest of any significance in the corporation.
  • The Appellate Court vacated and remanded.
    • The Appellate Court found that even though Glazier didn’t own any shares in Complex, he was an equitable owner because he exercised considerable authority over Complex.
      • The Court noted that under the doctrine of equitable ownership, an individual who exercises sufficient control over the corporation may be considered to be an owner, even if they technically don’t own any shares.
    • The Court found that in addition to being an equitable owner, there must be a showing that the owner must use that control to commit a fraud or other wrong that resulted in an unjust loss or injury. Since the Trial Court never asked this second question, the case was remanded back to determine if Glazier had committed a wrong.
  • On remand, the Trial Court found that Glazier’s actions were fraudulent because they left Freeman as “a general creditor of an essentially defunct corporation with virtually no assets.”